Discretionary Investment Management Working Group (DIMWG) Seeks to Standardize OCIO Data

On June 18th, 2020, industry leaders comprised of Outsourced Chief Investment Officer (OCIO) search consultants, legal experts, and top OCIO firms representing over $20 trillion in assets under management or advisement met in a virtual conference to address one of the most important issues facing the discretionary investment management industry: a lack of consistent, transparent, and reliable track record reporting. Participants of the Discretionary Investment Management Working Group on Data Standards (DIMWG) include 29 OCIO firms (8 of the top 10) that represent $1.6 Trillion AUM, or 69% of the worldwide OCIO market.

More and more corporate retirement plans, charitable foundations, university endowments, and other institutional asset owners are turning to OCIO firms to manage their assets. In 2019 alone OCIO assets grew from $1.98 trillion to $2.38 trillion, according to Charles Skorina & Company, easily eclipsing the projections made from Cerulli Associates just two years earlier.

With so many making the move from consultants to OCIOs, there is a great need to evaluate and compare the most important thing they do – manage investments. Without objective, standardized data, fiduciaries responsible for foundations, endowments, pension funds, hospital systems, and other institutional asset pools can’t make meaningful evaluations or comparisons of OCIOs due to the differing methods used for reporting data.

In 2012, North Pier Search Consulting developed a proprietary quantitative analysis process to address the track record evaluation and ongoing monitoring requirements of OCIOs serving ERISA retirement plans to help fiduciaries judge the investment efficacy of potential candidates as well as meet regulatory standards. Recognizing the great challenge facing the entire discretionary investment industry, not just ERISA plans, North Pier formed DIMWG in 2018, in an effort to develop a broadly accepted solution. At the inaugural meeting, 25 investment industry leaders and legal experts convened at UCLA to begin the process of defining issues and charting pathways to a solution. Members discussed concerns from varying perspectives and identified topics that needed to be examined – from those as broad as defining discretion to the specific challenge of addressing unique portfolio constructions. The group agreed to work toward a pioneering solution – standardized data that can be used to answer two seemingly simple questions, “What is an OCIO’s track record(s) when managing money? And how do you compare it to that of other firms?”

In a post-meeting survey conducted, 100% of OCIOs in attendance agreed that historical track record reporting is important in the hiring of a discretionary manger. With broad consensus that the group should move forward to achieve its goals, an advisory committee was formed. Membership of the advisory committee includes CAPTRUST, Commonfund, Dimeo Schneider, Kohler Investment Consulting, McDermott Will & Emery, Mercer, NEPC, North Pier, PFM, and SEI. This committee met five times over the following year to shape the group’s objectives, define goals, and plan future meetings. It was agreed that any standards developed by the group would need buy-in from the industry-at-large, thus expanding the group to include asset owners, search consultants, and a broader representation of OCIO firms.

The next meeting was set for March 2020 in Chicago, however, due to the pandemic, the committee decided to move forward virtually. The group met virtually on March 12th and 13th, primarily to orient new members to the mission and objectives set for the next meeting. The most recent working group conference, held on June 18th, brought together the strength and experience of 49 industry leaders to continue the work of standardizing data. Working together, the group laid the foundation for developing data standards that remain clear and understandable yet detailed enough to allow for robust analysis.

The next steps for DIMWG will consist of multiple breakout groups tasked with addressing specific subsets of the solution and addressing a variety of topics, including client industry segmentation, legacy assets, track record segmentation, liquidity, defining discretion, and needs for warehousing data.

Almost half of membership believes that DIMWG’s goals will be accomplished within 6 months to 1 year, with the other half believing the work will take 1-2 years. Additionally, nearly a third of participants agreed that users of OCIO services are more likely to face litigation in response to COVID-19 related market volatility. Establishing a reliable set of data standards is critical now more than ever.

Recognizing the truth in management expert Peter Drucker’s quote, “The best way to predict the future is to create it,” North Pier Search Consulting formed DIMWG to provide fiduciaries with a meaningful way to compare and evaluate OCIOs. And that’s exactly what DIMWG intends to do.

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